Insight into collateral management and its increasing relevance in modern banking In the wake of recent financial crises, firms of all sizes have adjusted their policies to incorporate more frequent instances of collateral management. Collateral Management: A Guide to Mitigating Counterparty Risk explains the connection between the need for collateral management in order to alleviate counterparty risk and the actions that firms must take to achieve it. Targeted at middle and back office managers seeking a hands-on explanation of the specifics of collateral management, this book offers a thorough treatment of the subject and attends to details such as internal record management, daily procedures used in making and receiving collateral calls, and settlement-related issues that affect the movements of cash and securities collateral. An expert in financial topics ranging from trade lifecycle to operational risk, author Michael Simmons offers readers insight into a field that, so far, is struggling to produce enough expertise to meet its high demand.
- Presents hands-on advice and examples from a bestselling, internationally renowned author who introduces his third book on operations and operations-related activities
- Explains the relationship between collateral management and preventing institutional defaults, such as the recent Lehman Brothers downfall
Since 2008, firms have recognized and embraced the importance of collateral management, but this book will provide practitioners with a deeper understanding and appreciation of its relevance.
Table of Contents:
Foreword xvii
Acknowledgements xix
About the Author xxi
Introduction xxiii
Part 1 Introductory Elements
Chapter 1 Fundamental Collateral Concepts 3
Chapter 2 The Nature and Characteristics of Collateral Types 7
Part 2 Sale & Repurchase (Repo) Trades and Collateral
Chapter 3 Sale & Repurchase (Repo) Trades and Collateral – Introduction to Repo 29
Chapter 4 Sale & Repurchase (Repo) Trades and Collateral – Classic Repo Trades 33
Chapter 5 Sale & Repurchase (Repo) Trades and Collateral – The Repo Trade Lifecycle 79
Introduction 79
Chapter 6 Sale & Repurchase (Repo) Trades and Collateral – Stock-Based Classic Repo Trades 101
Chapter 7 Sale & Repurchase (Repo) Trades and Collateral – Repo Trade Variations 103
Chapter 8 Sale & Repurchase (Repo) Trades and Collateral – The Global Master Repurchase Agreement 121
Part 3 Securities Lending & Borrowing and Collateral
Chapter 9 Securities Lending & Borrowing and Collateral – Introduction to SL&B 161
Chapter 10 Securities Lending & Borrowing and Collateral – Principles of SL&B 167
Chapter 11 Securities Lending & Borrowing and Collateral – The SL&B Trade Lifecycle 211
Chapter 12 Securities Lending & Borrowing and Collateral – Accessing the SL&B Marketplace 237
Chapter 13 Securities Lending & Borrowing and Collateral – The Global Master Securities Lending Agreement 253
Part 4a OTC Derivatives and Collateral
Chapter 14 OTC Derivatives and Collateral – Transaction Types – Introduction 295
Chapter 15 OTC Derivatives and Collateral – Transaction Types – Generic Structural Aspects 303
Chapter 16 OTC Derivatives and Collateral – Transaction Types – Interest Rate Swaps 311
Chapter 17 OTC Derivatives and Collateral – Transaction Types – Credit Default Swaps 319
Chapter 18 OTC Derivatives and Collateral – Transaction Types – Foreign Exchange Swaps 329
Chapter 19 OTC Derivatives and Collateral – Transaction Types – Cross-Currency Swaps 341
Chapter 20 OTC Derivatives and Collateral – Legal Protection – Introduction 349
Chapter 21 OTC Derivatives and Collateral – Legal Protection – Master Agreement and Schedule 351
Chapter 22 OTC Derivatives and Collateral – Legal Protection – Credit Support Annex 361
Chapter 23 OTC Derivatives and Collateral – Static Data 401
Chapter 24 The OTC Derivative Collateral Lifecycle 413
Chapter 25 OTC Derivatives and Collateral – The Collateral Lifecycle – Pre-Trading – Legal Documentation 415
Chapter 26 OTC Derivatives and Collateral – The Collateral Lifecycle – Pre-Trading – Static Data 419
Chapter 27 OTC Derivatives and Collateral – The Collateral Lifecycle – Trading – Trade Execution 421
Chapter 28 OTC Derivatives and Collateral – The Collateral Lifecycle – Post-Trading – Trade Capture 429
Chapter 29 OTC Derivatives and Collateral – The Collateral Lifecycle – Post-Trading – Trade Confi rmation/Affi rmation 435
Chapter 30 OTC Derivatives and Collateral – The Collateral Lifecycle – Post-Trading – Trade/Portfolio Netting 439
Chapter 31 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Portfolio Reconciliation 447
Chapter 32 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Marking-to-Market 457
Chapter 33 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Exposure Calculation 463
Chapter 34 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Receiving Margin Calls 475
Chapter 35 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Issuing Margin Calls 501
Chapter 36 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Holding Collateral 515
Chapter 37 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Introduction 531
Chapter 38 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Novation 533
Chapter 39 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Unwind 541
Chapter 40 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Offset 547
Chapter 41 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Post-Trade Execution Events – Credit Events 553
Chapter 42 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Collateral Substitution 559
Chapter 43 OTC Derivatives and Collateral – The Collateral Lifecycle – Throughout Lifetime of Trade – Income & Corporate Action Events 567
Chapter 44 OTC Derivatives and Collateral – The Collateral Lifecycle – Trade Termination – Trade Termination 575
Part 4b OTC Derivatives and Collateral – Legal Documentation
Chapter 45 OTC Derivatives and Collateral – Legal Documentation 579
Part 4c OTC Derivatives and Collateral – Regulatory Change and the Future Of Collateral
Chapter 46 OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Introduction 583
Chapter 47 OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Centrally Cleared Trades 597
Chapter 48 OTC Derivatives and Collateral – Regulatory Change and the Future of Collateral – Non Centrally Cleared Trades 629
Glossary of Terms 657
Useful Websites 703
Further Reading 705
Index 707
About the Author :
MICHAEL SIMMONS is a financial services operations specialist with expertise in post-trade processes. For over 20 years, he worked at a blue-chip investment bank (S.G. Warburg and Warburg Securities) where he was the manager of Fixed Income (Bond) Operations. Over these two decades of hands-on experience in the field, Mike identified a need for practitioner-oriented education programs on multiple aspects of operations, including the securities trade lifecycle, corporate actions, operational risk and associated controls. He thus began writing and delivering popular training courses, including the Operations Certificate Programme (a 5-day multi-subject examined qualification) for the International Capital Market Association. He is the author of two previous books, namely Securities Operations and Corporate Actions.
Observations on the style and content of this book can be conveyed to the author by email to info@mike-simmons.com.
